group seeks g0-ahead for europe equity fund
Franklin Templeton Investments is seeking approval for a Dublin domicile and listing for a mirror version of its US-registered Templeton Global Long/Short equity fund. The group plans to launch the fund into Europe later this month.
Dale Winner, manager of the fund, said in the 12 months to the end of July the fund returned 2.2% in dollar terms against the MSCI World index's fall of 21%, on around half the index's standard deviation of 16%.
The $106.9m fund, which is always net long and unleveraged, draws on research from 35 in-house sector analysts to select long positions Winner characterises as value with a catalyst.
'We are looking for normalised earnings and cashflow power in companies, generally looking three to five years out,' he said. On the short-side, Winner said the fund does 'not invest for defence, but shorts are offensive plays we believe will make money whether the market goes down or up.'
Winner emphasised that the fund does not simply short high P/E stocks ' the opposite of value-driven longs ' but seeks other reasons the stock will fall, using the same bottom- up process it employs for long positions.
'We look for deteriorating fundamentals focused on balance sheets and cashflow now, which may appear in the income statement in six months' time,' Winner said.
The fund was net short US stocks at the end of August because of valuations, little pricing power and poor earnings prospects, but it remained net long where pricing power existed among insurance, healthcare and defence. The fund is net long emerging markets for their 'phenomenally cheap' valuations, with the MSCI Emerging Markets Index trading at less than 10 times earnings.
'There are prospects for good earnings growth in 2003 compared with the MSCI World index, and in emerging markets you have got one-third valuation discounts, but double the earnings growth prospects.'
On a sector basis the fund was net long telecoms, mainly focused on emerging markets telcos such as Korea Telecom and TelMex, while having shorted firms such as Deutsche Telekom.
At the end of August, it had 60% gross exposure and was 20% net long.
Shorts working for the fund as the markets have fallen in 2002 to the end of July helped the fund rise 0.4%, while the CSFB Tremont Long Short index was down 3.5%, according to Winner.
The fund's worst month of the past 12 months to August saw it lose 3.3% against the benchmark's fall of 8.8%, and the fund's peak-to-trough NAV drawdown over the past 12 months of -6% beats the index's -30%, he said.
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